10 Things You Should Not Do With a Personal Loan
A personal loan is taken from a financial institution and can be used for anything the borrower pleases. If you need cash fast, a personal loan is the best solution. Getting a personal loan is now simpler than ever. This is because of the streamlined online applications and pre-approval options.
However, exercising caution while registering for a personal loan is important, as even a slight mistake may have significant effects on your finances.
If you apply for a personal loan without doing research and being careful, you might end up in a huge debt trap that could ruin your life and the lives of your loved ones. Look over this list of mistakes to avoid so you can handle your debt easily and save yourself from potential personal loan fraud.
- Not Consider Your Repayment Ability
A personal loan might be a lifesaver, but it also risks worsening your financial situation. You should know your repayment capacity before taking a loan. Borrow what you can easily pay back. Before applying for a loan, use an online EMI calculator to find your budget.
- Make Several Lender Requests
Loan applications create a “query” on your credit report, including the date and the lender you approached. Your credit score will decrease after each inquiry. Loan applicants who raise several questions quickly face a higher interest rate or a lower chance of approval from banks.
- Conceal Information About an Existing Loan
Lenders typically require borrowers to detail their current debt commitments before approving a loan. So, be prepared to discuss your previous debts and financial responsibilities. If you attempt to conceal this information, the lender may reject your loan application or charge you a high interest rate.
- Scan the Lender’s Documents
To fully know the loan’s terms and circumstances, it’s vital to read the fine print. Make sure you read the contract carefully to determine what fees and interest rates you will incur. In addition, you must read every clause carefully to protect yourself from being overcharged in the future.
- Neglect to Weigh Loan Alternatives
Before deciding on a lender, thoroughly investigate your loan options. Evaluate the terms of loans from various lenders. This includes interest rates, pre-payment penalties, and other fees.
- Fail to Pay Your Monthly Instalments on Time
Always keep in mind that there are two sides to every personal loan. Once a bank approves a loan, the borrower has to make regular payments to the lender. This is known as instalments or EMIs. If you miss paying your EMIs on time, it will badly affect your credit score and make it harder for you to receive personal loans in the future.
- Resolve Issues With the Help of a Loan
Given that you can get a personal loan regardless of the borrower’s credit history, it would be tempting to blow the money you’ve obtained on things like a vacation or a shopping trip. Avoid doing that if you have more urgent needs to fulfill.
- Not Monitoring Your Loans Regularly
It’s a good habit to know your loan and its associated details. If your loan is approved, you will receive many documents. Maintaining these records will strengthen your position in the event of a legal issue. You should also double-check this paperwork for mistakes. For example, it would not be pleasant to discover that you got approval for a smaller loan amount than expected or that the interest rate is incorrect.
- Risking Your Financial Future on a Personal Loan
At first glance, using the funds from your loan to engage in stock market speculation or any other kind of gambling may seem like a great plan. However, given the nature of stock markets, accurate prediction is rarely attainable. You may put the borrowed money into an investment that promises high returns, but if anything goes wrong, you’ll soon learn the lesson.
10. Putting in an application for someone who has a low credit score
When your family members and friends are in trouble, you should no doubt help them. But that doesn’t mean you should risk your financial future. When you want to take a personal loan on someone else’s behalf, especially if that person has bad credit, you need to be sure that they will pay the loan back on time.
Tips for Getting a Secure Personal Loan
You can obtain a personal loan from various sources, including a credit union, a bank, a credit card, or even a friend or family member. You may get better terms, a more flexible repayment plan, and cheaper interest rates on secured loans. While there is no need to put up security for an unsecured loan, its interest rate is higher.
- A good Credit Score
Look at your credit score before applying for a loan since most financial institutions use this as a requirement. Credit scores of 720 and above can get you the best interest rates. Make sure your credit record is accurate before applying for a loan.
- Compare Interest Rates
Always compare interest rates to ensure you get the best one possible on your loan. Your existing partnerships with financial institutions, like credit cards, banks, and credit unions, should be your first step.
- Self-Directed Investment
A personal loan through a P2P lending service, where borrowers and lenders do business entirely online, is yet another viable choice.
There are many fraudulent websites, so be cautious and only deal with FDIC-insured ones. Credible services evaluate your eligibility based on your credit history. Be aware that not all peer-to-peer lending platforms will allow you to apply for a personal loan, so do your research.
Conclusion
Knowing your requirements and desires is vital before asking for a personal loan. This will help save money on things that are not necessities. A Personal loan online is the best option if you need money quickly and can’t turn to family or friends.
Visit Piramal Finance for more blogs on personal loans and look at the products and services they offer as well.